Utility's contract loss may be costly

Audit: National Grid will lose economies of scale when LIPA contract ends

Published 10:30 pm, Monday, January 21, 2013

ALBANY — An audit of National Grid that found that the utility may have overcharged customers by as much as $44 million also predicts that the loss next year of the company's contract to run the electrical system on Long Island may likewise be extremely costly.

Overland Consulting, the Kansas-based consulting firm hired by the state Public Service Commission to perform the audit, says that National Grid's contract with the Long Island Power Authority gave the London-based company economies of scale that will be lost when the contract ends in 2014.

Overland says that National Grid, which operates both in New York and New England, had used its Long Island operation to help spread out of the costs of doing business in the U.S.

The Overland report estimates that as much as $60 million could be lost to the company without the LIPA contract supporting staff and operations on Long Island.

Other service areas, including upstate New York, will have to do more, increasing their costs. Many of National Grid's Long Island workers are expected to be hired by PSEG.

National Grid and others often buy other utilities to squeeze savings out of their operations because of natural duplications in their operational structure. In many cases, regulators require that the utilities share those savings with customers through lower rates.

National Grid lost its LIPA electrical distribution contract to PSEG, which is New Jersey's largest utility. National Grid still has a contract to run LIPA's power plants.

National Grid has been critical of the Overland audit since it was first released to the public last week. The company has argued that Overland was unfair to flag spending just because there wasn't the correct documentation or the money was allocated to the wrong account — issues that can easily be rectified.

The PSC last week ordered an investigation into Overland's findings and what exactly National Grid should return to customers. National Grid argues that it owes less than $155,000.

On Monday, National Grid spokesman Steve Brady said that National Grid did not address the LIPA issue over synergies when it responded to Overland's audit.

"We share resources with LIPA, so there is some potential for reductions in scale," Brady said. "However, we are still a very large company that can leverage scale."